<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
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Commission File Number 0-9387
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Empi, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1310335
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
5255 East River Road
Minneapolis, Minnesota 55421
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(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (612) 586-7300
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No
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8,594,179 shares of Common Stock were outstanding as of May 9, 1995.
This document contains 11 pages.
The Exhibit Index is on page 10.
1
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PART I - - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
The response to Part I, Item 1 is submitted as a separate section of
this report.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Empi, Inc.'s (the "Company") total sales for the 1995 first quarter totaled
$16.5 million compared to first quarter 1994 sales of $14.4 million, an
increase of 15 percent. Sales from the Company's core rehabilitation
business of TENS (Transcutaneous Electrical Nerve Stimulation) devices,
NMES (Neuromuscular Electrical Stimulation) devices and related accessories
totaled $11.8 million, a 7 percent increase relative to the same period
sales of $11.0 million in 1994. Sales from the Company's non-core products
of Innova PFS-REGISTRATION MARK- (pelvic floor stimulator),
DUPEL-REGISTRATION MARK- non-invasive drug delivery system, Advanced Dynamic
ROM-TM- and Ultraflex-REGISTRATION MARK- dynamic splints, sEMG (surface
electromyography biofeedback) and other miscellaneous products increased 38
percent and totaled $4.7 million compared to $3.4 million in the first
quarter of 1994. The Company recorded an overall sales volume/mix increase
of 17.9 percent and a slight decrease in sales pricing of 2.9 percent. The
most significant volume increase for all products was in the Company's
DUPEL noninvasive drug delivery system, which increased 40 percent when
compared to first quarter DUPEL sales in 1994. All other major product
groups showed a slight to moderate increase in volume. International sales
for the first quarter, as a percentage of total sales, were 8.3 percent and
6.7 percent for 1995 and 1994, respectively.
While the Company is pleased with the financial results in the first
quarter, it continues to be concerned with various market and insurance
reimbursement factors affecting its core rehabilitation business which
could impact revenues in future quarters.
Gross profit for the first quarter of 1995 was 72.6 percent compared to
75.1 percent for the first quarter of 1994. The 2.5 percentage point
decrease in margin is due primarily to higher production costs (inflation
and mix), higher inventory provisions, and an increase in distribution
costs associated with higher unit sales. The Company anticipates gross
profit, as a percentage of sales, to remain near its current level due to
price sensitivity and product mix.
Selling, general and administrative expenses during the first quarter
combined were of $8.5 million in 1995 and $7.9 million in 1994. Stated as
a percentage of sales SG&A expenses were 51 percent and 55 percent for 1995
and 1994, respectively. The increase in expenses was due primarily to
higher commissions (driven by higher sales), provisions to cover estimated
costs associated with closing down the Company's Canadian office and a
provision for 1995 incentive pay.
Research and development costs, as a percentage of sales, were 5.1 percent
and 5.3 percent during the first quarter of 1995 and 1994, respectively.
Stated in dollars, research and development expenses were $838,000 in 1995
compared to $756,000 in 1994, an increase of $82,000 or 10.8 percent. The
increase in research and development expenses was driven by tooling costs
relating to the Company's Advance Dynamic ROM splint project and by higher
payroll costs associated with additional staffing. The additional staff
were hired to build up the quality assurance group to support new product
developments including the Advanced Dynamic ROM splints, the Innova EMG
system, and other products which are still in development.
2
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FORM 10 - Q - - PART I - ITEM 2 (Continued)
Interest income for the first quarter of 1995 was $160,000 compared to
$50,000 in first quarter of 1994. The increase in interest income is
attributable to the Company's improved cash position which has allowed the
Company to increase its investments in interest-bearing securities.
Interest expense was $28,000 and $46,000 for the first quarter of 1995 and
1994, respectively. The majority of interest expense is due to an interest-
bearing note issued to finance the Company's acquisition of Nortech in
1992.
Net income for the first quarter of 1995 was $1.7 million compared to $1.3
million for the first quarter of 1994, an increase of $.4 million. The
primary reasons for the 33 percent improvement in net income were the 15
percent growth in sales and higher interest income combined with a lower
growth rate in operating expenses of 8 percent, which was partially offset
by a higher growth rate of 26 percent in cost of sales. The effective tax
rate for the first quarter of 1995 was 39 percent compared to 40 percent in
first quarter of 1994.
LIQUIDITY AND CAPITAL REQUIREMENTS
The Company had a very sound and strong financial position at the end of
the first quarter of 1995. Working capital currently stands at $34.7
million, an increase of $.4 million compared to year end 1994.
The Company has currently not borrowed against its $7 million line of
credit. The Company believes its cash, cash equivalents and short-term
investments, together with cash flows from operations and the line of
credit, will be sufficient to meet the Company's anticipated working
capital and capital outlay requirements.
PART II - - OTHER INFORMATION
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
(11) Statement re: computation of 11
per share earnings
(27) Financial Data Schedule (filed only in electronic
format)
(b) No report on Form 8-K has been filed during the quarter ended
March 31, 1995.
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Empi, Inc.
May 11, 1995 By /s/ Joseph E. Laptewicz, Jr.
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Joseph E. Laptewicz, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
May 11, 1995 By /s/ Timothy E. Briggs
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Timothy E. Briggs
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
4
<PAGE>
QUARTERLY REPORT ON FORM 10 - Q
PART I - ITEM 1
LIST OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995
EMPI, INC.
ST. PAUL, MINNESOTA
5
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
LIST OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following condensed consolidated financial statements of Empi, Inc. are
included in Part I - Item 1.
Condensed Consolidated Balance Sheets - - March 31, 1995 and
December 31, 1994,
Condensed Consolidated Statements of Operations - - Three
months ended March 31, 1995 and 1994,
Condensed Consolidated Statements of Cash Flows - - Three
months ended March 31, 1995 and 1994.
Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
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(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,095 $ 5,652
Short-term investments 4,863 5,309
Accounts and notes receivable-trade, less 16,092 16,825
allowances
Inventories - Note B 7,318 7,487
Deferred income taxes 4,620 4,277
Other 964 702
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TOTAL CURRENT ASSETS 40,952 40,252
PROPERTY, PLANT AND EQUIPMENT - NET 5,015 5,330
OTHER ASSETS 5,668 6,025
Long-term investments 3,080 1,101
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$54,715 $ 52,708
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,390 $ 2,941
Employee compensation 1,317 981
Commissions payable 614 559
Current portion of long-term debt 600 603
Income taxes 1,048 584
Other 267 240
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TOTAL CURRENT LIABILITIES 6,236 5,908
LONG-TERM DEBT, LESS CURRENT PORTION 1,800 1,800
SHAREHOLDERS' EQUITY:
Common Stock 24,004 24,033
Retained earnings 22,675 20,967
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TOTAL SHAREHOLDERS' EQUITY 46,679 45,000
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$54,715 $ 52,708
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</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended,
March 31
1995 1994
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(unaudited) (unaudited)
<S> <C> <C>
Net sales $16,524 $14,367
Cost of goods sold 4,520 3,575
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GROSS PROFIT 12,004 10,792
Operating expenses:
Selling, general and
administrative 8,471 7,883
Research and development 838 756
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9,309 8,639
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INCOME FROM OPERATIONS 2,695 2,153
Other income (expense), net 106 (14)
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INCOME BEFORE INCOME TAXES 2,801 2,139
Income tax expense 1,093 856
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NET INCOME $ 1,708 $ 1,283
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NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .20 $ .15
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Weighted average common and
common equivalent shares
outstanding during the period 8,641 8,662
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</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended,
March 31
1995 1994
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(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,708 $1,283
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities: 872 744
Depreciation and amortization
Provision for deferred income taxes (343) (79)
(Gain) loss on sale of equipment 5 ----
Provision for loss on accounts 650 727
receivable
Changes in operating assets and
liabilities:
(Increase) decrease in accounts (83) 892
receivable
(Increase) decrease in inventories 169 (843)
Increase in other assets/liabilities (65) (347)
Increase (decrease) in accounts
payable and accrued expenses (160) (921)
Increase (decrease) in income taxes
payable 464 25
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NET CASH PROVIDED BY OPERATING ACTIVITIES 3,217 1,481
INVESTING ACTIVITIES
Sale of short-term investments 1,000 ----
Purchase of short-term investments (554) ----
Purchase of long-term investments (1,979) ----
Additions to other assets (40) (12)
Acquisition of Nortech ---- (1,115)
Purchase of equipment and improvements (178) (353)
Proceeds from sale of equipment 9 ----
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NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,742) (1,480)
FINANCING ACTIVITIES
Payments on long-term debt (3) (3)
Proceeds from exercise of Common Stock
options 29 28
Other (58)
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NET CASH PROVIDED BY FINANCING ACTIVITIES (32) 25
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,443 26
Cash and cash equivalents at beginning of
year 5,652 6,231
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 7,095 $ 6,257
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</TABLE>
See notes to condensed consolidated financial statements.
9
<PAGE>
FORM 10 - Q - - PART I - ITEM 1
EMPI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management
of the Company, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation of the results have
been included. Operating results for the three months ended March 31, 1995
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in Empi,
Inc. and Subsidiaries' annual report on Form 10-K for the year ended
December 31, 1994.
NOTE B - INVENTORIES
(IN THOUSANDS)
March 31 December 31
1995 1994
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(unaudited)
Finished goods $5,175 $5,254
Work in process 868 794
Raw materials 1,275 1,439
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$7,318 $7,487
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EXHIBITS
Exhibit No. Description Page No.
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(11) Statement re: computation of 11
per share earnings
(27) Financial Data Schedule ----
(filed only in electronic format)
10
<PAGE>
EXHIBIT 11 - - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended,
March 31
1995 1994
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(unaudited) (unaudited)
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Average shares outstanding 8,579 8,502
Net effect of dilutive stock
options and warrants - based
on the treasury stock method
using average market price 62 160
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8,641 8,662
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Net income $1,708 $1,283
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Net income per share $ .20 $ .15
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FULLY-DILUTED EARNINGS PER SHARE:
Average shares outstanding 8,579 8,502
Net effect of dilutive stock
options and warrants - based
on the treasury stock method
using closing market price 144 95
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8,723 8,597
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Net income $1,708 $1,283
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Net income per share $ .20 $ .15
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</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from first
quarter 1995 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 7,095
<SECURITIES> 4,863
<RECEIVABLES> 23,505
<ALLOWANCES> 7,413
<INVENTORY> 7,318
<CURRENT-ASSETS> 40,952
<PP&E> 11,000
<DEPRECIATION> 5,985
<TOTAL-ASSETS> 54,715
<CURRENT-LIABILITIES> 6,236
<BONDS> 1,800
<COMMON> 24,004
0
0
<OTHER-SE> 22,675
<TOTAL-LIABILITY-AND-EQUITY> 54,715
<SALES> 16,524
<TOTAL-REVENUES> 16,524
<CGS> 4,520
<TOTAL-COSTS> 4,520
<OTHER-EXPENSES> 9,309
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 2,801
<INCOME-TAX> 1,093
<INCOME-CONTINUING> 1,708
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,708
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
